Few weeks back I wrote about importance of defining our financial target, so we can plan our investment (how much, how long, and what instrument) to achieve that target. This time we will discuss a very crucial thing that we need to put as our number one financial target, preparing our emergency fund.

Emergency fund will be required for any unexpected thing that may happen to us, for instance if we, for some reason would become jobless, when we need to pay some urgent unplanned bill like medical supposed we don’t have insurance or bill more than limit that we could claim. All of those require emergency fund, therefore, due to its function, emergency fund should be liquid enough for us to credit it whenever and wherever we would need it.

Amount of emergency fund we need to have is really depend on how is our money expenditure goes and whether we are single or married, having children or not, etc. However, lucky for us, some financial guru has define a guideline how much money we need to prepare. So here we go:

- Single: 4x monthly expenditure
- Married no children: 6x monthly expenditure
- Married with children: 9x monthly expenditure

So married people with children, ready to cry there are lots of money you need to save on (well, that applicable to me also …)  …. uhghh that bad news

Back to topic, now we know about function of emergency fund, amount we should prepare and it should be liquid enough, plus last but not least, we should have it as soon as possible because we never know what destiny would bring us to. So, how we going to prepare this fund? I will share you my experience.

My expense was about 50% of my monthly remuneration, and it’s recommended to have it less than 40% actually, so if our expenses more than that, believe me, better we try to reduce it by either settle and cut some recurring bills or evaluate our lifestyle. Also, out of all my remuneration, I have been use other 35% for paying loan (car and house credit loan), that give me 15% that I can use for saving. Because I want to get my emergency fund as soon as possible, so I decided to save 10% for emergency fund and other 5% for long term financial target. I have been saving this 10% for 3 years on a mutual funds instrument that gave me about 10% return per annum, and luckily I just need another 2 month to achieve my target where I would need more than 5 years to get my emergency fund ready if I decide to use conventional saving (after calculating estimated inflation rate).

Hope this sharing can useful for us

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• First step on investment, define our financial target (2)

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